The Philippines, Spain, the WTO and Brandy de Jerez

To talk about the Philippines in Spain is to talk about a sense of history and affection. My country has a great respect and enormous fondness for the Filipinos, a nation to whom, despite the great distance separating us, we feel particularly close as anyone who has visited us or is working here may well know. We should also acknowledge the warm welcome received by the Spanish in general throughout the more than seven thousand islands making up this wonderful archipelago named after a Spanish king.

However, after almost four hundred years of common history, it must be admitted that the economic and commercial relations between our two countries are far from being what both sides would really wish them to be. Those of us who truly believe in freedom consider it fundamental to facilitate competition and free trade aimed at improving the well-being of all citizens in general, and in particular that of the Filipino people themselves.

Recent ruling

A recent ruling handed down by the Panel of the World Trade Organization (WTO) in response to a complaint filed by the European Union and the United States of America may contribute to the realization of this aim.

As a brief background to this issue, let me emphasize that domestically produced liquors are currently taxed at a rate of P12.58 per proof liter, while imported spirits are subject to a tax rate that is between 11 and even more than 43 times the rate applied to local brands. Many experts have considered that such a tax system model is not only highly discriminatory but also outdated, ineffective and, above all, goes contrary to the basic principles of international regulations on trade

between nations.

In 2008, various legislative initiatives on so-called “sin products” (alcohol, tobacco) were taken in Manila in response to a need to raise revenue and subsequently to stave possible concerns about international pressure or threat of a WTO action.

In early November 2008, the Department of Finance proposed before the Congress a fully WTO-compliant system with a single rate for all spirits similar to that applied in the European Union. Strong lobbying, however, prevented the bill from being passed.

Violation

The industry has constantly raised this violation of WTO Law at different levels within the European Commission, but has so far led only to diplomatic action without any real success. As a result, the industry has decided to move forward and prepare a complaint to be filed under the Trade Barriers Regulation of the World Trade Organization.

On Aug. 15, 2011, the WTO panel in the dispute over the Philippine tax system for liquors issued its final report concluding that the current administration, which applies much lower taxes on domestically produced spirits compared to imported spirits, clearly discriminates against the imported products and is therefore in violation of the principle of nondiscrimination enshrined in the international agreements to which the Philippines is a signatory.

As far as we know, the Finance department in the Philippines is endorsing a “much simpler structure” of the so-called “sin tax bill” by adopting a unitary rate according to alcohol content. This draft is expected to deal with the WTO ruling.

However, the implications of reforming the tax system in the manner we have mentioned go beyond simply addressing the existing discrimination against foreign products. It will clearly be beneficial to consumers in the Philippines, to the country as a whole and to local producers. It will benefit the consumers because it will give them a more substantial freedom of choice and enable them to purchase different goods, independently of their origin, under similar conditions without the deception brought in by protective tax. It will be advantageous for the Philippines because it will make the country more attractive to investors. And it will actually increase tax revenues as experienced by other countries, including the European Union, after taking a similar step in restructuring their tax system. Local liquor producers will likewise benefit from the tax reform as it will undoubtedly make them more efficient and commercially competitive.

Noble spirit

Brandy de Jerez, a noble spirit produced solely and exclusively within a strictly limited geographical area in southern Spain, is obtained from the distillation of pure wine and aged in wooden casks previously used to mature the well-known and prestigious Vino de Jerez, or Sherry as it is known in English. The rich “solera” wines, those aged for the longest and which lie closely guarded in old wine cellars, some over a hundred and fifty years old, contribute to giving it an instantly recognizable character and category that have made this extraordinary spirit the most important in terms of sales of all those produced in Spain as well as the leading spirit imported by the Philippines!

I hope that the Philippines will soon solve this issue in the right direction as it is important for Philippine consumers, for the competitiveness of the industry and for the future of this beloved country.

With a glass of Brandy de Jerez, and on the [occasion] of the Senior Officials Meeting of the EU and the Philippines, I offer a toast to both the Philippines and Spain.

(Evaristo Babé is president of the Consejo Regulador del Brandy de Jerez.)